US acting as global policeman for financial crimes

Washington, United States | AFP |

Handing out multibillion-dollar fines right and left to domestic and foreign financial giants, the United States has taken on the role of the unforgiving global cop of the business world.

In stark contrast to the relative inertia of white-collar law enforcement in Europe, Washington most recently brought the hammer down on Deutsche Bank and Credit Suisse, which sold junk-filled, mortgage-backed securities ahead of the 2008 financial meltdown.

Deutsche Bank has agreed to a payout of $7.2 billion, while Credit Suisse settled for $5.3 billion to resolve American authorities’ allegations and avoid the lengthy headache of a trial.

Instead of dragging financial firms to court, the US has taken them to the cashier.

American giants have not been spared: JP Morgan Chase, Citigroup, Morgan Stanley and Bank of America collectively have shelled out $40 billion to settle cases linked to toxic, crisis-era financial products.

“There’s a kind of fundamentalism to US law,” said Nicolas Veron, a senior fellow at the Brussels-based think tank Bruegel and the Washington-based Peterson Institute.

“If you break the law, punishment comes down.”

– Justice without borders –

To be sure, British authorities have taken action over the Libor interest rate manipulation scandal but such retribution remains rare in the rest of Europe.

“It isn’t so much a difference in the rules as in the manner in which they are applied. Things are much more severe in the United States,” Veron told AFP, adding that European countries “do not dare” punish their national flagship companies.

The American legal framework nevertheless offers the United States the means to extend the long arm of the law well beyond its borders.

In the most recent cases, the United States imposed $2.6 billion in criminal penalties on the Brazilian construction conglomerate Odebrecht — most of which will be paid to Brazil — and a half billion on the Israeli generic drugmaker Teva Pharmaceutical. Both matters involved corruption occurring outside the United States.

The United States pioneered the prosecution of such foreign bribery cases, adopting the Foreign Corrupt Practices Act in 1977 in the wake of the Watergate scandal, which allows US officials to hunt down corrupt payments abroad when the companies involved are traded on Wall Street or are otherwise exposed to US jurisdiction.

In the decades since, member countries of the Organization for Economic Cooperation and Development have adopted similar laws but do not enforce them with the same vigor or frequency.

Given the means and opportunity to apply its laws “extraterritorially” with such regularity, the United States has become a kind of worldwide anticorruption police force, and buttressed its geopolitical influence.

“There’s a real nexus between economics and foreign affairs,” said Aaron Klein, head of the center on regulation and markets at the Brookings Institution in Washington.

“The next war is more likely to be fought with bonds than with bombs.”

– Making Apple pay –

In a different kind of case, Volkswagen’s sprawling emissions-cheating scandal also has shown the might of the US legal system and its ability to bring major companies to task.

To compensate drivers and repair damage to the environment, the giant German automaker has agreed to pay out more than $15 billion so far, and doubtless will have to pay more before putting the scandal behind it. But the company still could face criminal charges.

In Europe, authorities have also opened investigations into Volkswagen but by their own admission, the results will be much less spectacular.

“In the European Union, the way to damages is more complicated than in the United States,” EU Justice Commissioner Vera Jourova said in September.

In the United States, authorities can be supported in their actions by so-called class-action lawsuits brought collectively by groups of private individuals who have been wronged, which can ratchet up pressure on companies. But this option does not exist in Europe.

European authorities meanwhile have not been completely dormant in dealing with major companies. They have opened numerous anti-trust investigations and intensified their pursuit of tax avoidance and evasion by multinational companies.

Making perhaps its biggest splash to date, the European Commission at the end of August directed the iPhone maker Apple to pay 13 billion euros ($13.5 billion) in back taxes to Ireland, drawing the ire of a sizeable player: the United States.